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Diesel prices continue steady upswing, says EIA

By Jeff Berman, Group News Editor
February 01, 2011

In what has again become a common occurrence, diesel prices are up once again this week, going up $0.8 cents to $3.438 per gallon, according to the Department of Energy’s Energy Information Administration (EIA). The EIA added that current prices are up 65.7 cents per gallon compared to last year.

This increase marks the ninth straight week prices have risen for a cumulative 27.6 cent gain along with it marking the third straight week prices have topped the $3.40 per gallon level since hitting $3.482 during the week of October 20, 2008.

Diesel prices have been at $3 per gallon or more for 18 consecutive weeks. Prior to the week of October 4, when diesel prices hit $3.00 per gallon, the price per gallon of diesel was below the $3.00 mark for 18 straight weeks. But the recent rise in prices is in line with gains in the price per barrel of crude oil, which has been hovering in the mid-$80s to high $90s, on average, during the same period. 

Last week, oil barrel prices were trading at $86.64 on the New York Mercantile Exchange for an eight-week low, due to concerns over increasing supplies and a strengthening dollar, according to a MarketWatch report. But despite this recent decrease, there is increasing speculation that the price per gallon of diesel and regular gasoline could approach the $4 per gallon level, due to things like higher global demand for oil and a cold winter in many parts of the United States and Europe, leading to higher oil prices, according to media reports.

What’s more political unrest in Egypt is also factoring into higher oil prices, with a Financial Times report indicating that oil is now trading at $92.19 per barrel on the New York Mercantile exchange. The FT report added that this situation has the potential to “disrupt oil flows from the Middle East, which accounts for almost a third of global supply.”

If these oil increases are to continue, it will likely lead to a scenario where shippers need to be prepared to plan for them accordingly, especially when taking into consideration the relatively low fuel prices they factored into transportation budgets for much of 2010.
And should prices return to the record-breaking levels of 2008, when diesel was $4.78 per gallon and barrel prices were in the $150 range, it could lead to a return to the past in which fuel consumption patterns forced shippers to consider things like bringing more manufacturing operations closer to home—a practice also commonly referred to as near-shoring or near-sourcing.

The EIA is calling for 2011 crude oil prices to hit $93.42 per barrel, according to its recently-revised short-term energy outlook. This is above previous estimates of $79.41 per barrel for 2010 and $85.17 per barrel for 2011.  On the diesel side, the EIA is calling for the price per gallon of diesel in 2011 to average $3.40, up from a previous estimate of $3.23.

Derik Andreoli, a doctoral candidate at the University of Washington focusing on the interactions between oil and the economy, wrote in a recent blog for LM that the most important take-away of increasing oil and gas prices is that recent fuel price movements reflect emerging market conditions.

“The global economic recovery is causing markets to tighten and prices to rise and become more volatile,” wrote Andreoli. “While speculation feeds volatility in the short run, long-term trends are driven by the underlying fundamentals of supply and demand. As the world economy continues along the bumpy road to recovery, there are strong indications that oil producers will have a difficult time keeping pace. As a consequence, we should expect rising prices and high levels of price volatility to persist into the foreseeable future.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).


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